US Job Growth Slows in December, Annual Wage Increase Falls Below 4%

US job growth potentially slowed in December, while annual wage increases likely dipped below 4%, signaling a possible move by the Federal Reserve towards interest rate cuts. 

The anticipated Labor Department report is expected to show a slight rise in the unemployment rate from 3.7% to 3.8%, indicating a softer labor market and aligning with inflation reduction, strengthening expectations for a March rate cut.

Despite this potential slowdown, the report indicates the economy avoided a recession in 2023 and is poised for continued growth in 2024, supported by a resilient labor market. 

Elizabeth Crofoot, a senior economist at Lightcast, noted a job market where employers prioritize maintaining operations over expansion or layoffs, closely aligning with the Fed’s goals.

Forecasts predict a 170,000 increase in nonfarm payrolls for December, down from November’s 199,000 rise, projecting a significant drop from 4.793 million jobs in 2022 to approximately 2.722 million in 2023. 

This suggests reduced labor and economic demand after multiple rate hikes by the U.S. central bank.

While mild weather may have boosted hiring in construction and entertainment, retail employment remains uncertain post-holiday season. 

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US Job Growth in Specific Sectors Raises Market Concerns

us-job-growth-slows-december-annual-wage-increase-falls-below-4%
US job growth potentially slowed in December, while annual wage increases likely dipped below 4%, signaling a possible move by the Federal Reserve towards interest rate cuts.

Underneath the apparent resilience, concerns arise. Recent job growth concentrated in the hospitality, healthcare, and government sectors raises doubts about the broader job market’s strength.

Government hiring to restore education staffing to pre-pandemic levels significantly contributed to employment gains, casting doubt on the labor market’s robustness. 

Sung Won Sohn, a finance professor at Loyola Marymount University, noted potential underlying issues despite expectations of a “soft landing.”

Contrarily, Goldman Sachs economist Manuel Abecasis expressed lesser concern, indicating that dominant hiring sectors accounted for a significant portion of employment, foreseeing a gradual easing of total labor demand but broader hiring across industries.

Market expectations of a March Fed rate cut strengthen with anticipated moderate growth in average hourly earnings at 0.3% in December, down from November’s 0.4%. This could reduce year-on-year wage growth to 3.9% from 4.0% in November.

The Fed’s recent signals about an end to tightening and expectations of lower borrowing costs in 2024 seem timely. 

The forthcoming employment report will integrate annual revisions to household survey data, likely with minimal impact on jobless rates or labor participation rates.

The labor market continues to witness increased immigration, contributing to a larger labor pool that moderates wage growth and raises the unemployment rate, aligning with the Fed’s 2% wage growth target when considering productivity.

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